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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Quarter ended December 31, 1998.
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
Commission File Number: 000-24786
ASPEN TECHNOLOGY, INC.
(exact name of registrant as specified in its charter)
Delaware 04-2739697
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Ten Canal Park, Cambridge, Massachusetts 02141
(Address of principal executive office and zip code)
Registrant's telephone number, including area code: (617) 949-1000
Indicate by check mark whether the registrant: (1) has filed reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
Yes [X] No [ ]
As of December 31, 1998, there were 24,732,422 shares of the Registrant's common
stock (par value $.10 per share) outstanding.
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ASPEN TECHNOLOGY, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page(s)
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets
as of December 31, 1998 and June 30, 1998 3
Consolidated Condensed Statements of
Operations for the Three and Six Month
Periods Ended December 31, 1998 and 1997 4
Consolidated Condensed Statements of Cash Flows
for the Six Month Periods Ended
December 31, 1998 and 1997 5
Notes to Consolidated Condensed Financial Statements 6 - 9
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 10 - 14
Item 3. Quantitative and Qualitative Market Risk Disclosures 15 - 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16 - 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
</TABLE>
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ASPEN TECHNOLOGY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited and in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
------------- ----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 52,625 $ 78,694
Short-term investments 54,471 34,987
Accounts receivable, net 65,473 71,803
Unbilled services 18,526 18,077
Current portion of long-term installments receivable, net 24,292 23,643
Prepaid expenses and other current assets 14,097 10,831
--------- ---------
Total current assets 229,484 238,035
Long-term installments receivable, net 35,902 36,203
Property and leasehold improvements, at cost 81,468 76,314
Accumulated depreciation (39,610) (33,578)
--------- ---------
41,858 42,736
Computer software development costs, net 5,851 5,696
Intangible assets, net 12,545 12,857
Other assets 7,060 7,355
--------- ---------
$ 332,700 $ 342,882
========= =========
Current Liabilities:
Current portion of long-term debt $ 1,270 $ 2,187
Accounts payable and accrued expenses 31,891 38,545
Unearned revenue 7,595 6,008
Deferred revenue 19,312 17,888
Deferred income taxes 541 541
--------- ---------
Total current liabilities 60,609 65,169
Long-term debt, less current maturities 3,947 4,385
5 1/4% Convertible subordinated debentures 86,250 86,250
Deferred revenue, less current portion 13,100 15,074
Other liabilities 718 914
Deferred income taxes 6,076 6,074
Stockholders' Equity:
Common stock 2,495 2,473
Additional paid-in capital 151,655 148,342
Retained earnings 8,599 14,922
Accumulated other comprehensive income (loss) (247) (219)
Treasury stock, at cost (502) (502)
--------- ---------
Total Stockholders' Equity 162,000 165,016
--------- ---------
$ 332,700 $ 342,882
========= =========
</TABLE>
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ASPEN TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited and in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
----------------------- -------------------------
1998 1997 1998 1997
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Software licenses $ 28,673 $ 32,465 $ 44,677 $ 56,853
Maintenance and other services 32,982 27,738 63,687 52,803
-------- -------- --------- ---------
Total revenues 61,655 60,203 108,364 109,656
-------- -------- --------- ---------
Cost of software licenses 1,943 1,752 3,610 3,424
Cost of maintenance and other services 21,040 16,356 41,013 31,068
Selling and marketing 21,609 17,621 40,754 32,807
Research and development 11,937 10,358 23,541 20,521
General and administrative 5,625 4,839 11,100 9,341
One-time acquisition costs -- -- -- 509
-------- -------- --------- ---------
Total costs and expenses 62,154 50,926 120,018 97,670
-------- -------- --------- ---------
Income (loss) from operations (499) 9,277 (11,654) 11,986
Other income (expense), net 28 (91) 246 (158)
Interest income, net 1,212 1,347 2,364 2,800
-------- -------- --------- ---------
Income (loss) before provision for (benefit from)
income taxes 741 10,533 (9,044) 14,628
Provision for (benefit from) income taxes 260 3,791 (3,165) 5,251
-------- -------- --------- ---------
Net income (loss) $ 481 $ 6,742 $ (5,879) $ 9,377
======== ======== ========= =========
Diluted earnings (loss) per share $ 0.02 $ 0.28 $ (0.24) $ 0.39
======== ======== ========= =========
Weighted average shares outstanding-diluted 25,191 24,380 24,708 23,994
======== ======== ========= =========
Basic earnings (loss) per share $ 0.02 $ 0.29 $ (0.24) $ 0.41
======== ======== ========= =========
Weighted average shares outstanding-basic 24,707 23,115 24,708 22,726
======== ======== ========= =========
</TABLE>
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ASPEN TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)
<TABLE>
<CAPTION>
Six Months Ended December 31,
-----------------------------
1998 1997
-------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ (5,879) $ 9,377
Adjustments to reconcile net income (loss) to net cash provided by
operating activities (net of acquisition-related activity disclosed below):
Depreciation and amortization 8,905 5,939
Deferred income taxes 2 2,260
Decrease (increase) in accounts receivable 6,330 (10,356)
(Increase)decrease in unbilled services (421) 1,543
(Increase) in installments receivable (348) (3,809)
(Increase) in prepaid expenses
and other current assets (3,266) (883)
(Decrease) in accounts payable
and accrued expenses (6,704) (3,717)
Increase in unearned revenue 1,547 862
(Decrease) increase in deferred revenue (551) 3,245
-------- --------
Net cash provided by (used in) operating activities (385) 4,461
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and leasehold
improvements (5,143) (8,517)
(Purchase) sale of investment securities (19,464) 1,164
(Increase) decrease in other long-term assets 295 (299)
(Increase) in computer software development costs (1,482) (1,905)
Increase (Decrease) in other long-term liabilities (196) 5
Cash used in the purchase of business, net of cash acquired (1,200) (591)
-------- --------
Net cash used in investing activities (27,190) (10,143)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock under employee stock purchase plans 2,076 1,830
Issuance of common stock under employee stock ownership plan -- 478
Exercise of stock options 832 1,698
Payments of long-term debt and capital lease obligations (1,355) (798)
-------- --------
Net cash provided by financing activities 1,553 3,208
-------- --------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH (47) (22)
-------- --------
(DECREASE) IN CASH AND CASH EQUIVALENTS (26,069) (2,496)
CASH AND CASH EQUIVALENTS, beginning of period 78,694 18,284
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 52,625 $ 15,788
======== ========
During the six months ended December 31, 1998, the Company
acquired a company in a purchase transaction described in Note 4
This acquisition is summarized as follows-
Fair value of assets acquired, excluding cash $ 1,290 $ --
Payments in connection with the acquisitions, net of cash acquired (1,200) --
-------- --------
Liabilities assumed $ 90 $ --
======== ========
During the six months ended December 31, 1997, the Company
acquired certain companies in poolings-of-interests transactions
These acquisitions are summarized as follows-
Liabilities assumed $ 5,136
Book value of equity (1,419)
--------
Liabilities and stockholders' equity $ 3,717
========
</TABLE>
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ASPEN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
December 31, 1998
(unaudited)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying consolidated condensed financial
statements have been prepared in conformity with generally accepted accounting
principles and include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation. The results of operations for
the three and six month periods ended December 31, 1998 are not necessarily
indicative of the results to be expected for the full year. It is suggested that
these interim consolidated condensed financial statements be read in conjunction
with the audited consolidated financial statements for the year ended June 30,
1998, which are contained in the Company's Form 10-K, as previously filed with
the Securities and Exchange Commission.
2. ACCOUNTING POLICIES
(a) Revenue Recognition
The Company recognizes revenue from software licenses upon the shipment
of its products, pursuant to a signed non-cancelable license agreement.
In the case of license renewals, revenue is recognized upon execution
of the renewal license agreement. The Company has no significant vendor
obligations or collectability risk associated with its product sales.
The Company recognizes revenue from post-contract customer support
ratably over the period of the post-contract arrangement. The Company
accounts for insignificant vendor obligations by deferring a portion of
the revenue and recognizing it either ratably, as the obligations are
fulfilled, or when the related services are performed. If significant
application development services are performed in connection with the
purchase of a license, the license fees are recognized as the
application development services are performed.
Service revenues from fixed-price contracts are recognized on the
percentage-of-completion method, measured by the percentage of costs
(primarily labor) incurred to date as compared to the estimated total
costs (primarily labor) for each contract. When a loss is anticipated
on a contract, the full amount thereof is provided currently. Service
revenues from time-and-expense contracts and consulting and training
revenue are recognized as the related services are performed.
Services that have been performed but for which billings have not been
made, are recorded as unbilled services. Service billings that have
been recorded before the services have been performed are recorded as
unearned revenue in the accompanying consolidated balance sheets.
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Installments receivable represent the present value of future payments
related to the financing of non-cancelable term license agreements that
provide for payment in installments over a one to five year period. A
portion of the revenue from each installment agreement is recognized as
interest income in the accompanying consolidated condensed statements
of income over the installment period. The interest rate in effect for
the three and six months ended December 31, 1997 and 1998 was 8.5%. At
December 31, 1998, the Company had long-term installments receivable of
approximately $6.8 million denominated in foreign currencies. These
foreign installments receivable will mature through March 2004 and have
been hedged with specific foreign currency contracts. There have been
no material gains or losses recorded relating to hedge contracts for
the periods presented. The Company does not use derivative financial
instruments for speculative or trading purposes.
(b) Computer Software Development Costs
In compliance with Statement of Financial Accounting Standards (SFAS)
No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed", certain computer software development
costs are capitalized in the accompanying consolidated condensed
balance sheets. Capitalization of computer software development costs
begins upon the establishment of technological feasibility and ends
upon market introduction. Amortization of capitalized computer software
development costs is included in cost of revenues and is provided on a
product-by-product basis at the greater of the amount computed using
(a) the ratio of current gross revenues for a product to the total of
current and anticipated future gross revenues or (b) the straight-line
method over the remaining estimated economic life of the product, not
to exceed three years. Total amortization expense charged to operations
in the three and six month period ended December 31, 1998 was
approximately $0.6 and $1.3 million, respectively, as compared to the
three and six month period ended December 31, 1997, which was $0.3 and
$0.4 million, respectively.
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1 "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use" ("SOP
98-1"). SOP 98-1 requires computer software costs associated with
internal use software to be expensed as incurred until certain
capitalization criteria are met. The Company adopted SOP 98-1 as of
July 1, 1998. Adoption of this Statement did not have a material impact
on the Company's consolidated financial position or results of
operations.
(c) Net Income (Loss) Per Share
The Company adopted SFAS No. 128, "Earnings per Share", during the
quarter ending December 31, 1997. In accordance with SFAS No. 128,
basic earnings (loss) per share is calculated by dividing net income
(loss) by the weighted average number of common shares outstanding for
the period. Diluted earnings (loss) per share reflect the dilution of
potentially dilutive securities, primarily stock options, based on the
treasury stock method.
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Basic and diluted weighted average shares outstanding as required
by SFAS No. 128 are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Month Ended
December 31, December 31,
------------------ ------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Weighted average
shares outstanding - basic 24,707 23,115 24,708 22,726
Weighted average common
equivalent shares 484 1,265 -- 1,268
------ ------ ------ ------
Diluted weighted average
shares outstanding - diluted 25,191 24,380 24,708 23,994
====== ====== ====== ======
</TABLE>
There were 855,693 stock options and warrants not included in diluted
weighted average shares outstanding for the six month period ended
December 31, 1998, as the effect would have been anti-dilutive.
(d) Investments
The Company accounts for its investments in accordance with SFAS No.
115, "Accounting for Certain Investments in Debt and Equity
Securities". Under SFAS No. 115, securities purchased to be held for
indefinite periods of time, and not intended at the time of purchase to
be held until maturity, are classified as available-for-sale
securities. Securities classified as available-for-sale are required to
be recorded at market value in the financial statements. Unrealized
gains and losses have been accounted for as a separate component of
comprehensive income. Short-term investments held as of December 31,
1998 consist of $47.5 million in U.S. Corporate Bonds $7.0 million in
U.S. Government Bonds.
The Company does not use derivative financial instruments in its
investment portfolio.
3. SALE OF INSTALLMENTS RECEIVABLE
The Company sold, with limited recourse, some of its installment contracts to
financial institutions for approximately $13.7 and $15.5 million during the
three and six month periods ended December 31, 1998, respectively. The financial
institutions have partial recourse to the Company only upon non-payment by the
customer under certain installments receivables. The amount of recourse is
determined pursuant to the provisions of the Company's contracts with the
financial institutions and varies depending upon whether the customers under the
installment contracts are foreign or domestic entities. Collections of these
receivables reduce the Company's recourse obligations, as defined.
At December 31, 1998, the balance of the uncollected principal portion of all
contracts sold was $91.4 million. The Company's potential recourse obligation
related to these contracts is approximately $4.5 million. In addition, the
Company is obligated to pay additional costs to the financial institutions in
the event of default by the customer.
8
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4. ACQUISITIONS
(a) OPTPEMS Business of Callidus Technologies, Inc.
On September 14, 1998 the Company paid $1.2 million in cash for certain
assets and personnel of Callidus Technologies, Inc., a consulting firm
that specializes in the modeling of predictive emissions monitoring.
This acquisition has been accounted for as a purchase transaction. The
purchase price has been allocated to various assets, primarily
intangible assets, based on their fair values.
5. COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, Reporting Comprehensive Income, effective July
1, 1998. SFAS No. 130 requires that items defined as other comprehensive income,
such as foreign currency translation adjustments and unrealized gains and losses
on investments, be separately classified in the financial statements and that
the accumulated balance of other comprehensive income be reported separately
from retained earnings and additional paid-in capital in the equity section of
the balance sheet. The components of comprehensive income for the three months
ended December 31, 1998 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
------------------- ---------------------
1998 1997 1998 1997
----- ------- ------- -------
<S> <C> <C> <C> <C>
Comprehensive income (loss):
Net income (loss) $ 481 $ 6,742 ($5,879) $ 9,377
Unrealized gain (loss) on investments (302) (84) 20 (68)
Foreign currency adjustment (422) 137 (48) (23)
----- ------- ------- -------
Comprehensive income (loss): ($243) $ 6,795 ($5,907) $ 9,286
</TABLE>
6. REPRICING OF EMPLOYEE STOCK OPTIONS
On November 11, 1998 the Company's Board of Directors approved the repricing of
certain employee stock options with an exercise price in excess of the fair
market value of the Company's common stock. The exercise price for 2.62 million
shares of employee stock options was reset to $14.125, the closing market price
on November 11, 1998. All such options were adjusted by resetting vesting back
one year. Stock options held by executive officers and directors were not
eligible for such repricing.
9
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations: Comparison of Three and Six Months Ending
December 31, 1998 and 1997
TOTAL REVENUES
Revenues are derived from software licenses and maintenance and other services.
Total revenues for the three months ended December 31, 1998 were $61.7 million,
an increase of $1.5 million, or 2.4%, from $60.2 million in the comparable
period of fiscal 1998. Total revenues for the six months ended December 31, 1998
were $108.4 million, a decrease of $1.3 million, or 1.2%, from $109.7 million in
the comparable period of fiscal 1998.
Total revenues from customers outside the United States were $32.6 and $56.7
million, or 52.8% and 52.3%, of total revenues for the three and six months
ended December 31, 1998, respectively. The non-U.S. revenues for the comparable
periods in fiscal 1998 were $28.5 and $50.1 million, or 47.3% and 45.7%, of
total revenues. The geographical mix of license revenues can vary from quarter
to quarter; however, for fiscal 1999, the overall mix of revenues from customers
outside the United States is expected to be relatively consistent with the prior
year.
SOFTWARE LICENSES
Revenues from software licenses for the three months ended December 31, 1998
were $28.7 million, a decrease of $3.8 million, or 11.7%, from $32.5 million in
fiscal 1998. Software license revenue represented 46.5% of total revenue for the
three months ended December 31, 1998, as compared to 53.9% in fiscal 1998.
Revenues from software licenses for the six months ended December 31, 1998 were
$44.7 million, a decrease of $12.2 million, or 21.4%, from $56.9 million in the
comparable period of fiscal 1998. Software license revenue represented 41.2% of
total revenue for the six months ended December 31, 1998, as compared to 51.8%
in fiscal 1998. The decline in software license revenues was mainly attributable
to global economic conditions.
MAINTENANCE AND OTHER SERVICES
Revenues from maintenance and other services consist of consulting services,
post contract support on software licenses, training and sales of documentation.
Revenues from maintenance and other services for the three months ended December
31, 1998 were $33.0 million, an increase of $5.3 million, or 18.9%, from $27.7
million in the comparable period in fiscal 1998. Revenues from maintenance and
other services for the six months ended December 31, 1998 were $63.7 million, an
increase of $10.9 million, or 20.6%, from $52.8 million in the comparable period
in fiscal 1998. The increases in both periods reflect a continued focus during
fiscal 1999 on providing high value-added consulting and training services to
existing customers.
COST OF SOFTWARE LICENSES
Cost of software licenses consist of royalties, amortization of previously
capitalized software costs, costs related to the delivery of software (including
disk duplication and third party software costs), printing of manuals and
packaging. These costs, for the three and six months periods ended December 31,
1998 were $1.9 and $3.6 million, or 3.2% and 3.3%, respectively, of total
revenues. This compares to $1.8 and $3.4 million, or 2.9% and 3.1%,
respectively, of total revenues in the comparable period of fiscal 1998. Cost of
software licenses as a percentage of revenues from software licenses were 6.8%
and 8.1%
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for the three and months periods ended December 31, 1998. This is compared to
5.4% and 6.0% for the three and six months periods ended December 31, 1997,
respectively. The increase in these costs as a percentage of software license
revenue in fiscal 1999 compared to fiscal 1998 is due to incremental
amortization of computer software development costs and the spreading of this
cost over a smaller revenue base.
COSTS OF MAINTENANCE AND OTHER SERVICES
Costs of maintenance and other services consists of the cost of execution of
application consulting services, technical support expenses, the cost of
training services and the cost of manuals sold separately. These costs for the
three and six months ended December 31, 1998 were $21.0 and $41.0 million, or
34.1% and 37.8%, of total revenues, respectively. During the comparable period
in fiscal year 1998, these costs were $16.4 and $31.1 million, or 27.2% and
28.3%, of total revenues, respectively. Costs of maintenance and other services
as a percentage of their revenue were 63.8% and 64.4% in the three and six
months ended December 31, 1998. The same percentages in the comparable periods
of fiscal year 1998 were 59.0% and 58.8%, respectively. These percentage
increases reflect investments in personnel and related support, which were made
to improve the execution of the services projects.
SELLING AND MARKETING EXPENSES
Selling and marketing expenses for the three and six months periods ended
December 31, 1998 were $21.6 and $40.8 million, an increase of 22.6% and 24.2%,
respectively, from $17.6 and $32.8 million in the comparable periods in fiscal
year 1998. As a percentage of revenues, selling and marketing expenses were
35.0% and 37.6%, for the three and six months periods ended December 31, 1998,
respectively. These same percentages were 29.3% and 29.9% for the comparable
period in fiscal 1998. The Company has continued to invest in sales personnel
and regional sales offices to improve the Company's geographic proximity to its
customers, to maximize the penetration of existing accounts and to add new
customers. The increase in the percentage of selling and marketing expenses, on
a comparative period basis, is also related to the decline in software licenses
revenues identified above.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses consist primarily of personnel and outside
consultancy costs required to conduct the Company's product development efforts.
Capitalized software development costs are amortized over three years and
expensed as costs of license. Research and development expenses during the three
and six months periods ended December 31, 1998 were $11.9 and $23.5 million,
respectively, an increase of $1.5 and $3.0 million, or 15.2% and 14.7%,
respectively, from $10.4 and $20.5 million in the comparable periods of fiscal
1998. As a percentage of revenues, research and development costs were 19.4% and
21.7% for the three and six months periods ended December 31, 1998,
respectively. The percentages for the same period in fiscal 1998 were 17.2% and
18.7%, respectively. The increase in costs, and as a percentage of revenue,
reflects continued investment in the development of the Company's core modeling
products and a common software architecture encompassing the Company's expanded
family of software products. The Company capitalized 5.9% and 6.0% of its total
research and development costs during the three and six months periods ended
December 31, 1998, respectively. In the comparable periods of fiscal year 1998,
the Company capitalized 8.8% and 8.5%.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of salaries of
administrative, executive, financial and legal personnel, outside professional
fees, and amortization of certain intangibles. General and
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administrative expenses for the three and six months periods ended December 31,
1998 were $5.6 and $11.1 million, an increase of $0.8 and $1.8 million, or 16.2%
and 18.8%, respectively, from the comparable period of fiscal 1998. The increase
reflects the growth in the scale and scope of the Company's operations,
particularly the investments made in improving its information systems.
INTEREST INCOME
Interest income is generated from the license of software pursuant to
installment contracts and the investment of excess cash in short-term and
long-term investments. Under these installment contracts, the Company offers
customers the option to make annual payments for its term licenses instead of a
single license fee payment at the beginning of the license term. A substantial
majority of the off-line modeling customers elect to license these products
through installment contracts. The Company believes this election is made
principally because the customers prefer to pay for the Company's off-line
modeling products out of their operating budgets, rather than out of their
capital budgets. Included in the annual payments is an implicit interest charge
based upon the interest rate established by the Company at the time of the
license. The Company sells a portion of the installment contracts to unrelated
financial institutions. The interest earned by the Company on the installment
contract portfolio in any period is the result of the implicit interest
established by the Company on installment contracts and the size of the contract
portfolio. Interest income was $2.5 and $5.1 million for the three and six
months ended December 31, 1998 as compared to $1.4 and $2.9 million for the
corresponding periods in fiscal 1998. The increase reflects the interest income
generated from excess cash from the Company's 5 1/4% convertible debentures,
which was not issued and outstanding in the comparable three and six months
periods ended December 30, 1997.
INTEREST EXPENSE
Interest expense is generated from interest charged on the Company's 5 1/4%
convertible debentures, bank line of credit, notes payable and capital lease
obligations. Interest expense for the three and six months ended December 31,
1998 was $1.3 and $2.7 million compared to $0.1 and $0.1 million in the same
periods of fiscal 1998. The increase is primarily related to the interest
expense on the Company's 5 1/4% convertible debentures, which did not exist in
the comparable periods ended December 31, 1997.
TAX RATE
The effective tax rate for the three and six months periods ended December 31,
1998 was approximately 35% of pretax income (loss). The tax rate for the
comparable periods of fiscal year 1998 was slightly higher and was approximately
36%.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended December 31, 1998, the Company's cash and cash
equivalents balance decreased by $26.1 million, most of which was invested in
short-term securities. Operations used $0.4 million of cash during this period,
primarily related to the net loss from the first quarter.
In recent years, the Company has had arrangements to sell long-term contracts to
two financial institutions, General Electric Capital Corporation ("GECC") and
Sanwa Business Credit Corporation ("SBCC"). During the six months ended December
31, 1998, installment contracts increased slightly to $60.2 million, net of
$15.5 million of installment contracts sold to GECC and SBCC. The Company's
arrangements with the two financial institutions provide for the sale of
installment contracts up to certain limits and with certain recourse
obligations. At December 31, 1998, the balance of the uncollected principal
portion of the contracts sold to these two financial institutions was $91.4
million, for which the
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Company has a partial recourse obligation of approximately $4.5 million. The
availability under these arrangements will increase as the financial
institutions receive payment on installment contracts previously sold.
The Company maintains a $30.0 million bank line of credit, expiring December 31,
2000, that provides for borrowings of specified percentages of eligible accounts
receivable and eligible current installment contracts. Advances under the line
of credit bear interest at a rate equal to the bank's prime rate (7.75% at
December 31, 1998) plus a specified margin or, at the Company's option, a rate
equal to a defined LIBOR (5.06% at December 31, 1998) plus a specified margin.
The line of credit agreement requires the Company to provide the bank with
certain periodic financial reports and to comply with certain financial tests,
including maintenance of minimum levels of consolidated net income before taxes
and of the ratio of current assets to current liabilities. At December 31, 1998,
there were no outstanding borrowings under the line of credit.
In June 1998, the Company sold $86.3 million of 5 1/4% Convertible subordinated
debentures (the Debentures). The Debentures are convertible into shares of the
Company's common stock at any time prior to June 15, 2005, unless previously
redeemed or repurchased, at a conversion price of $52.97 per share, subject to
adjustment in certain events. Interest on the Debentures is payable on June 15
and December 15 of each year. The Debentures are redeemable in whole or part at
the option of the Company at any time on or after June 15, 2001 at various
redemption prices expressed as a percentage of principal plus accrued interest
through the date of redemption.
In the event of a change of control, as defined, each holder of the Debentures
may require the Company to repurchase its Debentures, in whole or in part, for
cash or, at the Company's option, for common stock (valued at 95% of the average
last reported sale prices for the 5 trading days immediately preceding the
repurchase date) at a repurchase price of 100% of the principal amount of the
Debentures to be repurchased, plus accrued interest to the repurchase date. The
Debentures are unsecured obligations subordinate in right of payment to all
existing and future senior debt of the Company, as defined, and effectively
subordinate in right of payment to all indebtedness and other liabilities of the
Company's subsidiaries.
YEAR 2000 COMPLIANCE
INTRODUCTION
Management has initiated a Company-wide program to prepare the Company's
computer systems and applications as well as the Company's product offerings for
the year 2000. The Company has formed a Year 2000 Steering Committee comprised
of representatives from the different divisions of the Company, including
product development staff and internal systems staff. The Steering Committee is
responsible for defining Year 2000 compliance standards for the entire Company,
identifying Year 2000 requirements for each area of the Company's business and
internal requirements, assessing current compliance and compliance efforts, and
generally providing direction and management of the Company's Year 2000 efforts.
The Company's Year 2000 efforts are focused on the compliance of its product and
service offerings to customers and on internal business-critical items.
Hardware, software, systems, technologies and applications are considered
"business-critical" if a failure would either have a material adverse impact on
the Company's business, financial condition or results of operations or involve
a safety risk to employees or customers.
13
<PAGE> 14
STATE OF READINESS
The Company has tested and determined that over 90% of its standard products are
compliant and has established a web-site, which lists the status of the
substantial majority of products. The Company is also working on the work
processes of its service groups to incorporate Y2K compliance tests or
procedures in carrying out service projects and is in the process of determining
the readiness of its internal systems which are business-critical.
INTERNAL SYSTEMS
The Company has reviewed certain internal systems and future system plans to
assess Year 2000 compliance. The Company expects that its internal system
development plans will address the Year 2000 issue and will correct any existing
non-compliant systems without the need to accelerate the overall information
systems implementation plans. If there are unidentified dependencies on internal
systems to operate the business, or if any required modifications are not
completed on a timely basis or are more costly to implement than currently
anticipated, the Company's business, financial condition or results of
operations could be materially adversely affected.
TESTING
The Company has developed a testing and compliance program to ascertain whether
and to what extent the Company may need to update its software products to
become year 2000 compliant. The results of this testing program are available on
the Company's public web-site.
The Company is also developing a plan to test any internal systems which have
not been certified as Year 2000 compliant or which have been determined to be
business-critical as described above. The experience of the Company in
developing its internal product testing program will be used in the development
of any testing program for internal systems.
COSTS TO ADDRESS YEAR 2000 COMPLIANCE
The Company expects to incur internal staff costs as well as consulting and
other expenses related to system enhancements for the year 2000. The Company
believes the total costs to be incurred for all year 2000 related projects will
not have a material impact on the future results from operations; however, the
Company is assessing such costs on an on-going basis in order to adjust spending
plans as necessary.
CONTINGENCY PLANNING AND RISKS
The Company has risks both that its products and services fail to be compliant
with certain Y2K functionality and that its business operations would be
interrupted or affected by the failure of other products or services to be Y2K
compliant. The external risks are difficult to determine due to the general
uncertainty inherent from the Company's dependence upon the Y2K compliance of
third party software operating systems and applications with which the Company's
software operates, and third-party suppliers, vendors and customers with whom
the Company does business. The Company is unable to determine at this time its
most reasonably likely worst case scenario. While costs related to the lack of
Y2K compliance of third parties, business interruptions, litigation and other
liabilities related to Y2K issues could materially and adversely affect the
Company's business, results of operations and financial condition, the Company
expects its Y2K compliance efforts to reduce significantly the Company's level
of uncertainty about the impact of Y2K issues affecting both its products and
services and internal systems.
14
<PAGE> 15
Item 3. Quantitative and Qualitative Market Risk Disclosures
Information relating to quantitative and qualitative disclosure about market
risk is set forth under the captions "Notes to Consolidated Condensed Financial
Statements," 2. (a) and (d), and below under the captions "Investment
Portfolio" and "Foreign Exchange Hedging".
INVESTMENT PORTFOLIO
The Company does not use derivative financial instruments in its investment
portfolio. The company places its investments in instruments that meet high
credit quality standards, as specified in the Company's investment policy
guidelines; the policy also limits the amount of credit exposure to any one
issuer and the types of instruments approved for investment. The Company does
not expect any material loss with respect to its investment portfolio. The
following table provides information about the Company's investment portfolio.
For investment securities, the table presents principal cash flows and related
weighted average interest rates by expected maturity dates.
Principal (Notional) Amounts by Expected Maturity in U.S. Dollars
(in 000s, except interest rates)
<TABLE>
<CAPTION>
Fair Value at FY2003
12/31/98 FY1999 FY2000 FY2001 FY2002 & Thereafter
------------- ------- ------ ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Cash Equivalents $37,218 $37,218
Weighted Average Interest Rate 5.14% 5.14% - - - -
Investments $54,536 $3,496 $27,025 $10,235 $9,765 $4,015
Weighted Average Interest Rate 6.19% 5.99% 6.08% 6.22% 6.53% 6.26%
Total Portfolio $91,754 $40,714 $27,025 $10,235 $9,765 $4,015
Weighted Average Interest Rate 5.77% 5.21% 6.08% 6.22% 6.53% 6.26%
</TABLE>
IMPACT OF FOREIGN CURRENCY RATE CHANGES
During the first six months of fiscal 1999, most currencies in Europe and
Asia/Pacific fluctuated but ended the period relatively strengthened against the
U.S. dollar. However, the translation of the parent Company's intercompany
receivables and foreign entities assets and liabilities did not have a material
impact on the consolidated results of the Company. Foreign exchange forward
contracts are only purchased to hedge certain customer accounts receivable
amounts denominated in a foreign currency.
FOREIGN EXCHANGE HEDGING
The company enters into foreign exchange forward contracts to reduce its
exposure to currency fluctuations on customer accounts receivables amounts
denominated in foreign currency. The objective of these contracts is to
neutralize the impact of foreign currency exchange rate movements on the
Company's operating results. The Company does not use derivative financial
instruments for speculative or trading purposes. The Company had $6.8 million of
foreign exchange forward contracts denominated in British, French, Japanese,
Swiss, German, Belgium and Netherlands currencies which represented underlying
customer accounts receivable transactions at the end of the second quarter of
fiscal 1999. The gains and losses on these contracts are included in earnings
when the underlying foreign currency denominated transaction is recognized.
Gains and loss related to these instruments for the second quarter and the first
six months of fiscal 1999 were not material to the Company. Looking forward, the
Company does not anticipate any material adverse effect on its consolidated
financial
15
<PAGE> 16
position, results of operations, or cash flows resulting from the use
of these instruments. However, there can be no assurance that these strategies
will be effective or that transaction losses can be minimized or forecasted
accurately.
The following table provides information about the Company's foreign exchange
forward contracts at the end of the second quarter of fiscal 1999. The table
presents the value of the contracts in U.S. dollars at the contract exchange
rate as of the contract maturity date. The average contract rate approximates
the weighted average contractual foreign currency exchange rate and the forward
position in U.S. dollars approximates the fair value of the contract at the end
of the second quarter of fiscal 1999.
Forward Contracts to Sell Foreign Currencies for U.S. Dollars Related to
Customer Accounts Receivable:
<TABLE>
<CAPTION>
Average Forward Amount
Contract in U.S. Dollars Contract Origination Contract Maturity
Currency Rate (in thousands) Date Date
- ----------------------- -------- --------------- ------------------------ -------------------------
<S> <C> <C> <C> <C>
Belgian Franc 32.88 95 Various: Feb 98 - Jul 98 Various: Jan 99 - Jan 00
British Pound Sterling 1.57 1,536 Various: Jun 97 - Oct 98 Various: Jan 99 - Aug 00
French Franc 5.33 184 Various: Jan 98 - Jul 98 Various: Jan 99 - Dec 01
German Deutsche Mark 1.59 1,337 Various: Apr 97 - Dec 98 Various: Jan 99 - Jan 01
Japanese Yen 117.1 3,534 Various: Jan 97 - Dec 98 Various: Jan 99 - Jul 01
Netherlands Guilder 1.79 35 Various: Apr 97 - Jan 98 Various: Jan 99 - Apr 99
Swiss Franc 1.41 64 Various: Mar 98 Various: Feb 99 - Feb 01
---------------
Total 6,785
===============
</TABLE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a party to lawsuits in the normal course of its business. The
Company believes that it has meritorious defenses in all lawsuits in which the
Company or its subsidiaries is a defendant. The Company notes that (i)
securities litigation, in particular, can be expensive and disruptive to normal
business operations and (ii) the results of complex legal proceedings can be
very difficult to predict.
On October 5, 1998, a purported class action lawsuit was filed in the United
States District Court for the District of Massachusetts against the Company and
certain of its officers and directors, on behalf of purchasers of the Company's
common stock between April 28, 1998 and October 2, 1998 (the "Van Ormer
Complaint"). The lawsuit seeks an unspecified amount of damages and claims
violations of Sections10 (b) and 20(a) of the Securities Exchange Act of 1934,
alleging that the defendants issued a series of materially false and misleading
statements concerning the Company's financial condition, its operations and
integration of several acquisitions. On October 26 a second purported class
action lawsuit was filed in the United States District Court for the District of
Massachusetts against the Company and certain of its officers and directors, on
behalf of purchasers of the Company's common stock between April 28, 1998 and
October 2, 1998 which was verbatim identical to the Van Ormer Complaint except
only for the plaintiff's name (the "Clancey Complaint"). On November 20, 1998 a
16
<PAGE> 17
third purported class action lawsuit was filed in the same court against the
same defendants which was verbatim identical to the Van Ormer and Clancey
Complaints except only for the plaintiff's name, the expansion of the class
action period from January 27, 1998 to October 2, 1998, and the addition of
references to statements made between January 27, 1998 and April 28, 1998 (the
"Marucci Complaint"). On January 27, 1999, in response to a motion to dismiss
filed by the Company, the plaintiffs consolidated the three complaints and filed
a Consolidated Amended Class Action Complaint. The Company believes it has
meritorious legal defenses to the lawsuits and intends to defend vigorously
against these actions. The Company is currently unable, however, to determine
whether resolution of these matters will have a material adverse impact on the
Company's financial position or results of operations, or reasonably estimate
the amount of the loss, if any, that may result from resolution of these
matters.
Item 2. Changes in Securities and use of Proceeds
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.36 Employment Agreement between Chesapeake Decision Sciences,
Inc., a wholly-owned subsidiary of the Company, and Thomas E.
Baker dated January 20, 1999.
(b) Reports on Form 8-K
None.
(c) Other Exhibits: Financial Data Schedule
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ASPEN TECHNOLOGY, INC.
Date: February 16, 1999 by: /s/ Lisa W. Zappala
------------------------------------
Lisa W. Zappala
Senior Vice President
Chief Financial Officer
17
<PAGE> 1
EXHIBIT 10.36
THOMAS E. BAKER
EMPLOYMENT AGREEMENT
AGREEMENT dated January 20, 1999 between Chesapeake Decision Sciences,
Inc., ("Chesapeake") a wholly-owned subsidiary of Aspen Technology, Inc., a
Delaware corporation located at 10 Canal Park, Cambridge, Massachusetts, 02141
(the "Company"), and Thomas E. Baker, an individual residing at 25 Water Street,
Lebanon, NJ 08833, (the "Employee").
1. EMPLOYMENT. The Company agrees to employ the Employee in the
Chesapeake business carried on by the Company or in some other mutually
agreeable capacity, from the date of this Agreement and hereafter for a
period of eight years on the basis that the Employee shall work half-time
for the first five years, and thereafter as agreed to by the Employee. Such
period of time may be reduced by a month for every two month equivalent the
Employee, as agreed to between the Employee and the Company, does not
provide services during the first five years; provided that the Company
provide Employee written notice 30 days prior to any reduction of such
period. The Employee shall take a senior role in the development and
management of the Company's supply chain technology as well as a senior
role in the development of certain of the Company's other technology
initiatives. The Employee shall report directly to the President of the
Company. The Employee agrees, while employed hereunder, to perform his
duties faithfully and to the best of his ability. The Employee shall be
employed at the Company's offices in New Jersey, and his principal duties
shall be performed primarily in New Jersey, except for business trips
reasonable in number and duration required in furtherance of the Company's
business.
2. TERM. The employment of the Employee hereunder shall begin on the date of
this Agreement and shall continue until reduced or terminated in accordance
with Sections 1 or 5 (the "Term").
3. COMPENSATION.
a) As compensation for the Employee's services during the Term, the
Company shall pay the Employee an annual base salary, initially at the
rate of $ 363,000 per year.
b) The Employee shall be covered by the bonus plan currently maintained
by the Company for its similarly-situated employees.
4. EMPLOYEE BENEFITS. The Employee shall be entitled to participate in all
"employee pension benefit plans," all "employee welfare benefit plans"
(each as defined in the Employee Retirement Income Security Act of 1974)
and all pay practices and other compensation arrangements maintained by the
Company (collectively, "Benefits"), on the same basis as similarly situated
employees of the Company. The Company shall reimburse the Employee from
time to time for the reasonable expenses incurred by the Employee in
connection with the performance of his obligations hereunder, in accordance
with the Company's policies on expense reimbursement. In addition and in
consideration of the covenant not-to-compete under Paragraph 7, the key-man
life insurance policy on the Employee held by Chesapeake shall be used by
the Company to fund a split dollar insurance program and/or a deferred
compensation plan for Employee on terms approved by the Employee. In
addition, the Company shall pay the
<PAGE> 2
annual cost of insurance relating to the split dollar insurance program
during the term of this Agreement in an amount not to exceed $2,000.00 per
annum.
5. TERMINATION DATE; CONSEQUENCES FOR COMPENSATION AND BENEFITS
a) DEFINITION OF TERMINATION DATE. The first to occur of the following
events shall be the "Termination Date":
i) The date on which the Employee becomes entitled to receive
long-term or short-term disability payments by reason of total
and permanent disability;
ii) The Employee's death;
iii) Voluntary resignation;
iv) Discharge of the Employee by the Company after one of the
following events shall have occurred, which event shall be
specified to the Employee by the Company at the time of
discharge: material willful misconduct in the discharge of his
duties, conviction of the Employee or the entry of a plea of
guilty or nolo contendere by the Employee to any crime involving
moral turpitude, or any material breach under paragraph 7, 8, 9
or 10 of this Agreement by the Employee which is not cured within
30 days after written notice from the Board of Directors of the
Company to the Employee setting forth the nature of the breach
("Discharge for Cause");
b) CONSEQUENCES FOR COMPENSATION AND BENEFITS. On Termination as a result
of a voluntary resignation or Discharge for Cause, the Company shall
pay base salary to the Employee through the Termination Date, and
shall pay to the Employee all Benefits accrued through the Termination
Date, payable in accordance with the respective terms of the plans,
practices and arrangements under which the Benefits were accrued, but
shall pay no cash bonus for the fiscal year in which the Termination
Date occurs. On a Termination due to the Employee's death or
disability, the Company shall continue to pay, at its option, base
salary or a lump sum equivalent to Employee or his estate. The Company
will obtain adequate disability and life insurance to secure such
payments and will provide Employee evidence of such coverage during
the term of this Agreement.
6. LIQUIDATED DAMAGES; NO DUTY TO MITIGATE DAMAGES. The amounts payable
pursuant to Section 5(b) shall be deemed liquidated damages for the early
termination of this Agreement and shall be paid to the Employee regardless
of any income the Employee may receive from any other employer, and the
Employee shall have no duty of any kind to seek employment from any other
employer until the Termination Date.
7. AGREEMENT NOT TO COMPETE. The Employee agrees that, while serving as an
Employee of the Company, he will not serve as an employee or director of
any business entity other than the Company and its affiliates, but may
serve as a director of a reasonable number of not-for-profit corporations
and may devote a reasonable amount of time to charitable and community
service. In consideration of the payments and agreements hereunder, for one
year following any Termination Date, the Employee shall not engage,
directly or indirectly, in any business competitive with the Company's
business in the area of supply chain planning and scheduling software,
consulting services and support. The Employee may hold stock or a limited
2
<PAGE> 3
partnership interest of 5% or less in any publicly traded entity without
violating this Agreement.
8. AGREEMENT NOT TO SOLICIT. In consideration of the payments and agreements
hereunder and under the Agreement and Plan of Reorganization, for the
greater of two years after the date of this Agreement or one year following
any Termination Date, the Employee shall not solicit any employee of the
Company or an affiliate to leave such employment to provide services to the
Employee or any other business entity, whether or not the Employee is
employed by such entity, or the Employee has a material financial interest
therein. Soliciting a former employee of the Company or an affiliate to
provide such services shall not be a violation of this Agreement.
9. CONFIDENTIAL INFORMATION: NON-DISCLOSURE. Employee acknowledges that the
business of Company, and their affiliates is highly competitive and that
Company has provided and will provide Employee with access to Confidential
Information relating to the business of Company and their affiliates.
"Confidential Information" means and includes Company's confidential and/or
proprietary information and/or trade secrets that have been developed or
used and/or will be developed and that cannot be obtained readily by third
parties from outside sources. Confidential Information includes, by way of
example and without limitation, the following: information regarding
customers, employees, contractors, and the industry not generally known to
the public; strategies, methods, books, records, and documents; technical
information concerning products, equipment, services, and processes;
procurement procedures and pricing techniques; the names of and other
information concerning customers, investors, and business affiliates (such
as contact name, service provided, pricing for that customer, amount of
services used, credit and financial data, and/or other information relating
to Company's relationship with that customer); pricing strategies; plans
and strategies for expansion or acquisitions; budgets; customer lists;
electronic databases; models; specifications; computer programs; internal
business records; contracts benefiting or obligation Company; bids or
proposals submitted to any third party; technologies and methods; training
methods and training processes; organizational structure; salaries of
personnel; payment amounts or rates paid to consultants or other service
providers; and other such confidential or proprietary information. Employee
acknowledges that this Confidential Information constitutes a valuable,
special, and unique asset used by Company, or their affiliates in their
business to obtain a competitive advantage over their competitors. Employee
further acknowledges that protection of such Confidential Information
against unauthorized disclosure and use is of critical importance to
Company, and their affiliates in maintaining their competitive position.
Employee also will have access to, or knowledge of, Confidential
Information of third parties, such as actual and potential customers,
suppliers, partners, joint venturers, investors, financing sources and the
like, of Company, and their affiliates.
Employee agrees that Employee will not, at any time during or after
Employee's employment with Company, make any unauthorized disclosure of any
Confidential Information of Company or their affiliates, or make any use
thereof, except in the carrying out of his or her employment
responsibilities hereunder, except that following termination of his
employment Employee shall have the right, on prior consent of the Company
which consent shall not be unreasonably withheld, to use MIMI software and
ancillary software and information in non-commercial projects (including
the application of MIMI's optimization and simulation technology to the
AmericaOne challenge yacht's design process for which permission is hereby
expressly granted) that do not compete with the Company's business.
Employee also agrees to preserve and protect
3
<PAGE> 4
the confidentiality of third party Confidential Information to the same
extent, and on the same basis, as Company's Confidential Information.
10. PROPRIETARY RIGHTS. All Proprietary Information in any form, whether
patentable or copyrightable or not, which Employee generates either solely
or jointly during Employee's employment by The Company (the "Developments")
will be the sole and exclusive property of The Company (and in the case of
copyrightable material, will be a "WORK MADE FOR HIRE" by the Employee for
The Company). Employee will promptly and fully disclose all Developments to
The Company and, if deemed necessary by The Company and at The Company's
expense, will execute and deliver such instruments as The Company may
request to protect its right, title, and interest in and to any of the
Developments.
a) RECORDS AND EQUIPMENT. Immediately upon the termination of Employee's
employment, or otherwise on demand by the Company, Employee will
deliver to the Company all Proprietary Information, including without
limitation, papers, photographs, drawings, notes, plans, computer
programs, tapes, listings, copies of correspondence, memoranda,
reports, customer lists, addresses, computers and other materials or
equipment made or compiled by Employee or made available to Employee
during the course of employment. Employee may not retain any copies
without the Company's express written permission.
b) REPRESENTATION. The Employee understands that it is the Company's
policy not to accept the confidential or proprietary information of
third parties without appropriate permission. Consequently, the
Employee represents and warrants that he has not brought with him, and
will not disclose to the Company at any time, any confidential
information belonging to a third party without such third party's
express written permission. The Employee understands and agrees that
breach of the foregoing representation and warranty is cause for
discipline, up to and including termination of employment, but such
termination would not be considered a "Discharge for Cause".
11. ARBITRATION. In the event that either party hereto has any claim hereunder,
the party shall promptly notify the other party of such claim. If within 30
days of the receipt of such notice of claim, the parties cannot agree on a
resolution of such claim, the parties agree to submit such dispute to
binding arbitration to be held in Boston, Massachusetts under the rules of
the American Arbitration Association. Three arbitrators shall conduct any
such arbitration, one of whom shall be selected by the Employee, one of
whom shall be selected by the Company and one of whom shall be selected by
the arbitrators so selected. The expenses of any such arbitration shall be
paid by the non-prevailing party, as determined by the final order of the
arbitrators.
12. ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the entire
agreement of the parties and may be altered or amended or any provision
hereof waived only by an agreement in writing signed by the party against
whom enforcement of any alteration, amendment, or waiver is sought. No
waiver by any party of any breach of this Agreement shall be considered as
a waiver of any subsequent breach.
13. BINDING OBLIGATIONS. This Agreement shall be binding upon and inure to the
benefit of the Company and their successors and assigns and the Employee
and his personal representatives.
4
<PAGE> 5
14. ASSIGNABILITY. Neither this Agreement nor any benefits payable to the
Employee hereunder shall be assigned, pledged, anticipated, or otherwise
alienated by the Employee, or subject to attachment or other legal process
by any creditor of the Employee, and notwithstanding any attempted
assignment, pledge, anticipation, alienation, attachment, or other legal
process, any benefit payable to the Employee hereunder shall be paid only
to the Employee or his estate. The Company may assign this Agreement to
Chesapeake, provided that the Company shall remain as guarantor of all
obligations and responsibilities of the Company hereunder.
15. GOVERNING LAW. This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts.
16. OTHER AGREEMENTS. The obligations and agreements contained herein are in
addition to and do not supercede or replace any obligations, covenants,
representations or warranties contained in the Agreement and Plan of
Reorganization among the Company, Chesapeake and AT Acquisition, Inc.,
including without limitation all exhibits entered into therewith, and the
Non-Competition Agreement between Employee, Chesapeake, and the Company.
IN WITNESS WHEREOF, the Company and the Employee have signed and sealed
this Agreement as of the date first written above.
ASPEN TECHNOLOGY, INC. Thomas E. Baker
By:
--------------------------------- ---------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 52,625
<SECURITIES> 54,471
<RECEIVABLES> 108,291
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 229,484
<PP&E> 81,468
<DEPRECIATION> 39,610
<TOTAL-ASSETS> 332,700
<CURRENT-LIABILITIES> 60,609
<BONDS> 90,197
0
0
<COMMON> 2,495
<OTHER-SE> 159,505
<TOTAL-LIABILITY-AND-EQUITY> 332,700
<SALES> 108,364
<TOTAL-REVENUES> 108,364
<CGS> 44,623
<TOTAL-COSTS> 120,018
<OTHER-EXPENSES> (246)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,364)
<INCOME-PRETAX> (9,044)
<INCOME-TAX> (3,165)
<INCOME-CONTINUING> (5,879)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,879)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> (.24)
</TABLE>
